By Roy Simon [Originally published in NYPRR April 2011]
April 1st marks NYPRR’s 13th birthday — which means that NYPRR is celebrating its bar mitzvah. I’m going to mark the occasion with a history of lawyer regulation in New York based on my articles in NYPRR. Our first issue was in April 1998. We have published each issue by the first of every single month since then like clockwork. I have had the privilege to work with Lazar Emanuel on every issue throughout those 13 lucky years (as have many other authors on ethics and professionalism). He lets me write literally whatever is on my mind every month — he never tells me what to write. The energy and talent that Lazar has put into NYPRR has created a valuable source of information for the New York legal community, and we are all the beneficiaries of his vision and efforts. NYPRR even offers its subscribers hard-to-get CLE credits every month — a great bonus!
In this article, I will begin looking back on some of the major events in the field of professional responsibility in New York since NYPRR began publishing in 1998.
The Statistical Breakdown
First, let me give you a statistical breakdown on the topics of my NYPRR articles. From our inaugural issue in April 1998 until today, I have written a total of 164 articles. (That’s more than 12 articles a year, but in the early days I used to write two articles for some issues.) Of my 164 articles, well over half have been in three general areas: rules governing lawyers, conflicts of interest, and confidentiality. To be specific:
♦ Rules regulating lawyers. About 37 articles (22%) have addressed rules to regulate professional conduct, including proposed rules, approved rules, letter of engagement rules, civility rules, sanctions rules, ABA model rules, and various other rules.
♦ Conflicts of interest. Another 37 articles (22%) have dealt with conflicts of interest. These articles have clustered around four topics: corporate family conflicts, screening, advance conflict waivers, and the advocate-witness rule.
♦ Confidentiality. About 24 articles (14%) have addressed confidentiality, including attorney-client privilege and work product protection.
That accounts for 98 articles, nearly 60% of my total. Three other categories accounted for another 28 articles.
♦ Actions against lawyers. 12 articles (7%) concerned actions against lawyers, including legal malpractice, breach of fiduciary duty, and professional discipline. These articles covered topics such as the relationship between legal malpractice and breach of fiduciary duty, the constitutionality of keeping disciplinary proceedings confidential, the statute of limitations in legal malpractice actions, the ethics of threatening to file a grievance against an adversary, and the “but for” standard in transactional legal malpractice suits.
♦ Legal fees. 9 articles (5%) concerned legal fees, including the “catalyst theory” of court-awarded legal fees, changing fee agreements during a representation, advance consent to withdrawal for nonpayment of fees, accepting legal fees from a client’s employer, and the enforceability of unconscionable fee agreements
♦ No-contact rule. About 7 articles (4%) concerned the so-called “no-contact” Rule, Rule 4.2 (formerly DR 7-104), especially communications with an adversary’s former employees.
Thus, six discrete topics account for 126 articles (77%).
The remaining 38 articles (23%) covered a wide range of topics — spoliation of evidence, client perjury, unauthorized practice of law, the duty to keep old client files, preserving client wills, how bar association ethics committees operate, the ethics of ethics consulting, expelling partners from a law firm, and other topics too numerous to list, as well as quite a few articles summarizing recent ethics opinions and significant judicial opinions.
In future issues, I will review my articles and general developments regarding conflicts, confidentiality, and perhaps other topics in greater detail, but in this special 13th birthday issue, I want to start telling the story of the evolution of lawyer regulation in New York during NYPRR’s 13 years. I am doing this because I have never seen all of this rich history written down in one place and it fascinates me.
In the Beginning: The Lay of the Land at the Birth of NYPRR
In April 1998, we were eagerly waiting for the Appellate Divisions to decide the fate of the rule changes to the Code of Professional Responsibility recommended by the Special Committee to Review the Code of Professional Responsibility, universally known as the “Krane Committee,” after its dynamic leader, Steven C. Krane of Proskauer.
The Code of Professional Responsibility, which New York had adopted in 1970, was badly in need of updating. The Appellate Divisions had made some major changes back in 1990 — for example, adding a rule to govern conflicts with former clients, and a rule making partners responsible for the misconduct of associates under some conditions. The Appellate Divisions also made minor changes in 1994, and major changes in 1996, acting sua sponte to make New York the first state in the country to subject law firms as entities to professional discipline, and the only state expressly requiring law firms to adopt and implement conflict-checking systems. But because New York had continued clinging to the framework and most of the language of the ABA model Code of Professional Responsibility, which the ABA had not amended since 1980, New York’s Code needed updating.
Steve Krane and his Special Committee had worked for several years to recommend comprehensive amendments to the Code. These were forwarded to the courts on March 4, 1997. Throughout 1998, we thought the courts were on the verge of adopting the proposed amendments, but in fact they did not approve the proposals until June 30, 1999 — more than two years and three months after receiving them.
Back in 1997, however, the courts had begun aggressively implementing the recommendations of the Committee on the Profession and the Courts (the “Craco Committee,” after its Chair, Louis Craco of Willkie Farr). The Craco Committee had been appointed in 1993 by Chief Judge Judith Kaye. The Craco Committee issued its visionary report in 1995, and the Administrative Board of the Courts endorsed most of its recommendations in 1996. (The Administrative Board consists of the four Presiding Justices of the Appellate Divisions, plus the Chief Judge of the Court of Appeals and the Chief Administrative Judge of the Unified Court System.)
Standards of Civility
One of the first Craco Committee proposals that the Courts acted upon was Standards of Civility. In June 1998, in an article entitled To Hell With Standards of Civility? Wait, Not So Fast!, I wrote about the Standards in NYPRR. Here’s how I began the article:
In September 1997, effective immediately, the New York courts adopted Standards of Civility, a nonbinding set of “guidelines intended to encourage lawyers, judges and court personnel to observe principles of civility and decorum.” Does anyone need these things? The Craco Committee thought so. The November 1995 Final Report of the Committee on the Profession and the Courts … said:
The Committee urges the Unified Court System to adopt a code of conduct…that will reorient the bar and bench toward the observance of courtesies that have long enhanced the quality of professionalism in New York. Aspirational in tone and content, such a code will form a frame of reference to assist both bench and bar in discerning the bounds of civility among other things.
Will the Standards of Civility resurrect the bar’s tradition of professional courtesy? On the surface, it doesn’t seem likely. Most lawyers already agree with the Standards of Civility and those who don’t aren’t likely to pay attention. The Standards are about as unobjectionable as the messages on Hallmark greeting cards. Consider the major headings in the section entitled “Lawyers’ Duties to other Lawyers, Litigants and Witnesses”:
Lawyer’s Duties to Others
• Lawyers should be courteous and civil in all professional dealings with other persons.
• When consistent with their clients’ interests, lawyers should cooperate with opposing counsel in an effort to avoid litigation and to resolve litigation that has already commenced.
• A lawyer should respect the scheduling commitments of opposing counsel, consistent with protection of the client’s interests.
• A lawyer should promptly return telephone calls and answer correspondence reasonably requiring the response.
• The timing and manner of service of papers should not be designed to cause disadvantage to the party receiving the papers.
• A lawyer should not use any aspect of the litigation process, including discovery and motion practice, as a means of harassment or for the purpose of unnecessarily prolonging litigation or increasing litigation expenses.
I concluded my article with these thoughts:
[W]hile the new Standards of Civility are unlikely to have much direct impact on the day-to-day practice of law, they suggest a new atmosphere in which lawyers are expected to be civil and courts are ready and eager to sanction conduct that oversteps the bounds of zealous advocacy. Lawyers in the habit of “winning through intimidation” (to borrow the title of a popular book) should thus be forewarned that even more powerful and more intimidating forces — the courts and the grievance authorities — are manning the parapets of civility, and may be ready to shoot on sight to repel aggressive acts of rudeness or unprofessional conduct, The atmosphere is tense, the authorities are on high alert, and lawyers who want to stay out of trouble should strive to be on their best behavior.
There were some CLE programs about civility soon after the Standards were issued, and a few courts cited the Standards even though they were nonbinding. Then I didn’t hear much about the Standards of Civility for many years. But in 2010, the Bankruptcy Court of the Eastern District of New York announced that it had adopted the Standards of Civility, so I guess they are still alive — and maybe they do some good.
Mandatory CLE and Stiffer Sanctions
In 1998, the Administrative Board imposed mandatory continuing legal education (MCLE) on all New York lawyers — including four hours of CLE in ethics every two years. (newly admitted New York lawyers had been subjected to MCLE a year earlier.) New York wasn’t ahead of the curve — we were approximately the 37th state to adopt MCLE — but in my view MCLE was a positive change.
Also in 1998, and also at the urging of the Craco Committee, the Administrative Board significantly amended 22 NYCRR Part 130, New York’s main provision on sanctions for frivolous litigation conduct. I took advantage of the opportunity to write in depth on this new development in the world of professional responsibility in New York. For the April 1998 issue of NYPRR, I wrote an article — Stiffer Sanctions For Frivolous Litigation Conduct: Amended Part 130 Now in Effect — that summarized the retooled sanctions rule as follows:
Tougher sanctions for frivolous litigation conduct in New York State courts are in place as of March 1, 1998, when amendments to 22 NYCRR Part 130 took effect. The amendments, which build on recommendations by the Craco Committee in 1995, raise the stakes for litigators in four ways. …
Dollar ceiling raised: The dollar ceiling on sanctions has been raised significantly. The old rule set a maximum of $10,000 in sanctions per case, whereas the amended rule sets maximum sanctions at $10,000 “for any single occurrence of frivolous conduct.” See 130-1.2. In effect, the sky is now the limit.
Signature requirement: The amended rule requires an attorney to sign “every pleading, written motion, and other paper, served on another party or filed or submitted to the court…” Unless “good cause” is shown, “the court shall strike any unsigned paper if the omission of the signature is not corrected promptly after being called to the attention of the attorney or party.” The attorney’s signature certifies that to the best of the attorney’s “knowledge, information and belief, formed after an inquiry reasonable under the circumstances, the presentation of the paper or the contentions therein are not frivolous…” See 130-1.1a(a)-(b). The old rule did not contain any certification requirement.
Wider definition of “frivolous”: The amended rule widens the scope of frivolous conduct by providing that conduct is “frivolous” if it “asserts material factual statements that are false.” See 130-1.1(c)(3). The old rule had provided that conduct was frivolous only if it was “completely without merit in law or fact…”
Greater sanctions for failure to appear: If an attorney fails without good cause to appear for a scheduled court hearing, the amended rule allows a court to impose financial sanctions on him personally “in addition to” requiring the attorney to pay attorney fees and other expenses incurred by other parties. See 130-2.1(a). The old rule allowed either personal sanctions or fees and expenses, but not both.
In my conclusion to the article on tougher sanctions, I said:
The amended rule will at first make law practice more difficult, especially for sole practitioners. But in the long run, if courts really enforce the new rule, it should cut down on frivolous litigation and frivolous litigation tactics. That should reduce the costs of litigation for clients and leave lawyers and judges more time to think about the merits of cases rather than the methods by which they are litigated.
Was I right? I have no empirical or anecdotal evidence either way. Meanwhile, the 1998 sanctions provisions remain in effect today, with only a few minor changes.
Comprehensive Changes to the Code of Professional Responsibility
In 1999, the courts finally adopted the bulk of the Krane Committee proposals. Those changes included, among others:
• adding DR 1-105 (now Rule 8.5) to give guidance on choice of law to lawyers who practice in multiple jurisdictions
• tightening restrictions on targeted mail solicitation in DR 2-103 (now Rule 7.3)
• allowing lawyers to advertise under DR 2-105 (now Rule 7.4) that they are certified as “specialists” by a private organization approved by the ABA
• allowing law firms, per DR 3-102 (now Rule 5.4), to compensate nonlawyers “based in whole or in part on a profit-sharing arrangement”
• reorganizing the advocate-witness rule, DR 5-102 (now Rule 3.7), and updating it with the “significant issue” requirement
• increasing restrictions in DR 5-104 (now Rule 1.8) on business transactions with clients
• changing the “obvious” standard in DR 5-105 (now Rule 1.7) to a “disinterested lawyer” standard and augmenting the requirements for obtaining consent to a conflict of interest
• adding guidance in DR 5-109 (now Rule 1.13) for lawyers who learn of wrongdoing within an organizational client
• adding DR 5-111 (now Rule 1.8) to govern sexual relations with clients
• amending DR 7-104 (now Rule 4.2) to expressly authorize lawyers to encourage clients to communicate directly with opposing clients
Unfortunately, the Appellate Divisions rejected one of the Krane Committee’s best proposals: dropping imputation of personal interest conflicts throughout a law firm. (COSAC resubmitted a narrower form of this non-imputation proposal in 2008, but the Courts rejected it again, so things go on pretty much as they always have, with most lawyers seemingly ignoring the rule that imputes personal interest conflicts except in the most serious situations, like suing a partner’s brother or a partner’s business.)
The Krane Committee also amended a number of Ethical Considerations in significant ways, and those changes did not require court approval. In August 1999, I wrote about them in an article entitled “Amendments to the ECs” as follows:
Almost lost in the hoopla over the new amendments to the disciplinary rules are the new amendments to the Ethical Considerations (EC’s), effective June 30, 1999. The EC’s are not formally adopted by the courts, but they are adopted by the New York State Bar Association, and courts look to the EC’s for interpretive guidance. The major changes to the ECs are in Canons 2 (advertising), 5 (conflicts of interest), and 7 (advocacy).
Many of the amended ECs ended up in the Comments to the new Rules of Professional Conduct.
Also in 1999, the ABA Commission on multidisciplinary Practice (the MDP Commission) was recommending that the legal profession tear down the barriers between lawyers and nonlawyers in the legal profession and thus enable clients to engage in “one-stop shopping” for legal and nonlegal services. The MDP Commission’s Reporter was the late and beloved Mary Daly, then a chaired professor at Fordham Law School, later the Dean at St. John’s Law School, and a frequent contributor to NYPRR.
The Commission issued its “final report” in June of 1999, which recommended that lawyers be permitted to share legal fees with nonlawyers “subject to certain safeguards.” The report also recommended that lawyers be allowed to form partnerships with accountants and accounting firms (as well as other nonlawyers and nonlegal business entities), provided the nonlawyers signed an “undertaking” not to interfere with a lawyer’s independent professional judgment and to abide by the rules of professional conduct, and the law firm took various precautions.
New York lawyers were aghast. At the ABA’s 1999 Annual meeting, the New York delegation helped to defeat the MDP Commission’s proposals and instead to adopt a formal Resolution to protect the legal profession’s “core values,” and not to change the rules prohibiting partnerships between lawyers and nonlawyers “unless and until additional study demonstrates that such changes will further the public interest without sacrificing or compromising lawyer independence and the legal profession’s tradition of loyalty to clients.” The Resolution passed by a vote of 304 to 98.
The “additional study” was spearheaded by the New York State Bar Association, which appointed a Special Committee on the Law Governing Firm Structure and operation (known as the “MacCrate Committee” after its Chairman, Bob MacCrate). At the same time, the ABA’s MDP Commission presented new but weaker recommendations that lawyers “should be permitted to share legal fees and join with nonlawyer professionals in a practice that delivers both legal and nonlegal professional services (multidisciplinary Practice) provided that the lawyers have the control and authority necessary to assure lawyer independence in the rendering of legal services.” The MacCrate Committee countered with a massive report on multidisciplinary practice, which the House of Delegates approved in June of 2000. A month later, at the ABA’s 2000 Annual meeting at the New York Hilton, as New York lawyers led the charge against MDP, the ABA overwhelmingly rejected the MDP Commission’s report, discharged the Commission, and passed a resolution urging the legal profession to protect its “core values” by continuing to prohibits lawyers from sharing fees or forming law partnerships with nonlawyers or from allowing nonlawyers to own any interest in law firms.
New York’s courts soon took up the MacCrate Committee report, circulating proposed new and amended Disciplinary Rules for public comment in the summer and fall of 2001. Effective Nov. 1, 2001, new DR 1-106 (Responsibilities Regarding Nonlegal Services) and DR 1-107 (Contractual Relationships Between Lawyers and Nonlegal Professionals) took effect — New York’s answer to the MDP Commission — without sacrificing the “core values” of the legal profession.
These rules were to be the Next Big Thing, a model for other states to emulate. I wrote six separate articles about DRs 1-106 and 1-107 in NYPRR in late 2001 and early 2002. But as far as I can tell, the buzz ultimately proved to be “full of sound and fury, signifying nothing.” The new rules were cumbersome, and under 22 NYCRR Part 1205 (a court rule companion to DR 1-107), full-blown strategic alliances were allowed only with five professions: Architecture, Certified Public Accountancy, Professional Engineering, Land Surveying, and Certified Social Work. Missing from the list were doctors, psychologists, real estate brokers, vocational experts, and various other nonlegal professions with whom lawyers might want to form alliances. At the end of the day, very few law firms formed strategic alliances. However, most of the language adopted in 2001 remains intact today — in Rules 5.7 and 5.8.
In 2001, the courts were also busy putting together rules on fee arbitration. Back in 1993, after the courts adopted standards recommended by the Milonas Commission for matrimonial cases, divorce lawyers could no longer sue their clients for fees without first offering them fee arbitration. In 1995, the Craco Committee recommended extending mandatory fee arbitration to all lawyers, and in the fall of 2001, the courts announced that they had adopted mandatory fee arbitration rules that would take effect on January 1, 2002. But the bar associations said they had not yet trained enough fee arbitrators, so the courts postponed the fee arbitration rules until June 1, 2002. I wrote about them in my April 2001 article, entitled Fee Arbitration Rules to Take Effect June 1, which summarized the new rules as follows:
What Do the New Fee Dispute Rules Cover?
The basic reach of the new fee dispute program is simple. Section 137.1(a), entitled “Application,” says: “This Part shall apply where representation has commenced on or after June 1, 2001, to all attorneys admitted to the bar of the State of New York who undertake to represent a client in any civil matter.” in other words, if you are a New York attorney and you start representing a client in a civil matter after June 1st of this year, then you are probably covered.
Are There Any Exceptions?
Yes, §137.1(b) sets forth eight separate exceptions: (1) criminal matters; (2) fee disputes involving less than $1000 or more than $50,000 (unless an arbitral body and the parties all consent); (3) “claims involving substantial legal questions, including professional malpractice or misconduct;” (4) claims for relief other than adjusting a legal fee; (5) disputes over a legal fee set by a court; (6) disputes where no legal services have been rendered for more than two years; (7) disputes with out-of-state attorneys who either have no office in New York or did not render any material portion of the services in New York; and (8) disputes where the person requesting arbitration is neither the client nor the client’s legal representative.
Stated the other way around, if you are a New York attorney who starts working on any civil matter after June 1st of this year, and your client requests arbitration within two years after you finish your work solely to contest from $1000 to $50,000 of your fees, then the new rules apply to you unless the dispute involves “substantial legal questions” such as professional malpractice or misconduct. note that the dispute resolution rules cover all types of clients, both individual and organizational. Every client may take advantage of the fee dispute resolution program.
These rules make it easier, procedurally, for clients to challenge bills for legal fees, but I once heard that lawyers love fee arbitration because the lawyers win 97% of the time. This is another program that is ripe for empirical study.
Written Letters of Engagement
An even bigger event in 2002 was the adoption by the Administrative Board of the Courts of the new Written Letter of Engagement Rule, 22 NYCRR Part 1215, mandating written letters of engagement for any matter in which the fees were expected to be $3000 or more, unless the services were “of the same general kind as previously rendered to and paid for by the client.” in my March 2002 NYPRR article, Letters of Engagement Are Now Mandatory, I gave this history and summary of the new rule:
In June 2001, the Administrative Board of the Courts voted in principle to adopt a new court rule requiring letters of engagement, and soon circulated a draft rule for public comment. The draft rule required lawyers to give every client a letter of engagement “at the commencement of representation” in all fee-generating matters unless the fee was expected to be $1,000 or less …
In October 2001, the State Bar’s Committee on Attorney Professionalism recommended that the Bar support the letter of engagement rule in principle, but suggested the following changes: (a) the fee exemption should be raised to $5,000, (b) attorneys should be permitted to use a signed retainer agreement in place of a letter of engagement, (c) letters of engagement should not be required where attorneys had ongoing relationships with existing clients, and (d) attorneys should be permitted to provide a letter of engagement after the commencement of a representation where circumstances made it impractical to do so at the commencement.
In November 2001, the NYSBA House of Delegates soundly rejected the proposal for mandatory letters of engagement, expressing what State Bar President Steven Krane described as “vehement opposition.” nevertheless, in January of 2002 the courts announced that they had adopted a letter of engagement rule that would govern all representations commenced after March 4, 2002. The rule as adopted reflected the Bar’s concerns but did not directly adopt the Bar’s suggested changes.
The New Rule’s Requirements
Section 1215.1 states the requirements imposed by the new rule. our treatment of the rule will read like a newspaper story we will cover who, what, and when.
Who? Who is covered by the new rule? The rule applies to every attorney who “undertakes to represent a client and enters into an arrangement for, charges or collects any fee from a client …” Thus, any representation that begins on or after march 4, 2002 in which a lawyer is charging “any” fee is subject to the requirements of the rule unless an exception applies.
What? What are the requirements imposed by the new rule? The main requirement indeed, the only requirement is that an attorney “shall provide to the client a written letter of engagement …” What must this written letter of engagement contain? To answer that question, we have to read 1215.1(b):
(b) The letter of engagement shall address the following matters:
1) Explanation of the scope of the legal services to be provided;
2) Explanation of attorney’s fees to be charged, expenses and billing practices; and
3) Where applicable, notice of the client’s right to arbitration of fee disputes under Part 137 of the Rules of the Chief Administrator.
The first part of the letter should describe the matter the lawyer will be handling for the client. The description should be sufficiently precise to avoid any later confusion, and should make clear not only what services the lawyer will render but also what services the lawyer will not render. If the lawyer will be handling a specific transaction, for example, the letter of engagement should make clear whether the lawyer will handle any litigation arising out of the transaction. If the lawyer will be handling a litigation matter, the letter should state whether the lawyer will also handle any appeal. If a lawyer is negotiating with a failing company, the lawyer should state whether the lawyer will continue to handle the matter if the company files for bankruptcy.
The next part of the letter must describe three separate things: (a) legal fees, (b) expenses, and (c) billing practices. The letter should describe the legal fees in detail so that the client cannot possibly misunderstand the basis for calculating fees. …
In April 2002, less than a month after the rule took effect, the Courts amended the rule to account for insurance company clients, and I wrote another article for the may 2002 NYPRR entitled Letters of Engagement and the Defense Bar to answer some questions that had already arisen. (I will not review that article here.)
Chief Administrative Judge Lippman emphasized in the press at the time of its adoption that the engagement letter rule was not a disciplinary rule and would not be enforced through the disciplinary process, but various courts began to deny fees to lawyers who failed to send their clients written letters of engagement pursuant to the rule. And seven years later, effective April 1, 2009, the written letter of engagement rule was effectively incorporated into the disciplinary rules, because Rule 1.5 requires a lawyer to communicate information about fees and expenses, as well as the scope of the representation, “in writing where required by statute or court rule.”
Major Events at the ABA
Two other major regulatory events took place in 2002, but they took a long time to reach New York. In 1997, the ABA had appointed a special Ethics 2000 Commission to review and revise the ABA Model Rules of Professional Conduct. By 2001, the “E2K Commission,” as it was called, had made formal recommendations. At the ABA’s 2002 mid-year meeting, the ABA approved most of the E2K Commission proposals, including three new rules — Rules 1.18, 2.4, and 6.5. I wrote about those in the July 2002 issue of NYPRR in an article entitled American Bar Association Adopts Three New Rules. I gave a brief introduction and summarized one of those new rules as follows:
At its February 2002 mid-year meeting, the ABA adopted three brand new ethics rules that are now officially incorporated into the ABA Model Rules of Professional Conduct. New York lawyers should care about these new rules because each rule reflects a situation that was not adequately covered by the ABA Model Rules and — more importantly for our readers — is not adequately covered by the New York Code of Professional Responsibility. …
One of the ABA’s new rules addresses conflicts of interest that arise out of a lawyer’s preliminary interview with a prospective client that decides not to hire the lawyer. Under the New York Code of Professional Responsibility and case law, such clients are considered full-fledged former clients, entitled to the full protections of the Code. Under New York’s DR 5-108(A), therefore, a lawyer who has interviewed or been consulted by a prospective client has a full-blown duty of confidentiality to that person and may not oppose that person in a substantially related matter without the person’s consent.
Moreover, if the person refuses consent (as many will), then the lawyer’s entire law firm is vicariously disqualified under DR 5-105(D). Is that fair? Should a one-hour interview with a prospective client by one lawyer in a firm disqualify the entire firm from opposing that person in a substantially related matter, even if no other lawyer in the firm is privy to whatever confidences and secrets the person revealed during the preliminary interview?
The ABA thinks not. New Model Rule 1.18 explains a lawyer’s duties to a prospective client, defined as any person who talks to a lawyer about “the possibility of forming a client-lawyer relationship with respect to a matter.” Comment 3 to the new rule rejects any magical minimum-time period by stating that a person who engages in discussions about the possibility of forming an attorney-client relationship is a prospective client “regardless of how brief the initial conference may be.”
All three of the ABA rules eventually ended up in the New York Rules of Professional Conduct. In fact, the Appellate Divisions, acting on their own, adopted their own version of ABA Rule 6.5 in 2007 (then numbered DR 5-101-a).
Six months later, at the ABA’s 2002 Annual meeting, the ABA adopted groundbreaking amendments to Rule 5.5 (equivalent to New York’s DR 3-101) and companion amendments to Rule 8.5 (equivalent to New York’ DR 1-105). These rule changes had been proposed by the ABA Commission on Multijurisdictional Practice (MJP Commission), whose reporter was Bruce Green of Fordham and whose members included my long-time co-author, Stephen Gillers of N.Y.U. Both professors are thoughtful, practical, and well attuned to the realities of law practice.
I wrote about the MJP amendments in an article entitled The ABA’s Multiple Actions on Multijurisdictional Practice. I noted that the amendments to Rule 5.5 were designed to allow all lawyers in good standing significantly more freedom to practice law in other jurisdictions as long as the practice was “temporary,” the lawyer did not claim to be licensed in the jurisdiction where the temporary practice occurred, and the temporary practice had some connection to the lawyer’s litigation or transactional practice. The amendments to Rule 5.5 also allowed permanent practice by in-house lawyers and by lawyers who were authorized by federal law (such as patent law or immigration law) to provide services throughout the United States. Companion amendments to Rule 8.5 specified that a “lawyer not admitted in this jurisdiction is also subject to the disciplinary authority of this jurisdiction if the lawyer provides for authors to provide any legal services in this jurisdiction.” The amendments always reminded me of the Southwest Airline commercials: “you are now free to move about the country.”
The amendments to Rules 5.5 and 8.5 were carefully constructed to balance the needs of clients — especially multistate and multinational clients — with the needs of the states to regulate the practice of law. The rules were just right for an economic powerhouse like New York State, because we want lawyers from other jurisdictions to feel free to come to New York temporarily on behalf of their clients to negotiate deals with New York companies. The ABA rules were also just right for New York lawyers whose New York clients conduct business all around the country and for New York lawyers whose out-of-state clients retain New York firms for the high level of legal expertise available here. These lawyers naturally want to travel to their out-of-state clients from time to time without getting admitted to practice in another state or hiring local counsel.
Steve Krane immediately realized the value of these rules and formed a subcommittee of COSAC to study the ABA multijurisdictional practice rules. He aimed to put New York in the forefront of the multijurisdictional practice movement. If New York adopted rules welcoming out-of-state lawyers into New York on a temporary basis, then other states would follow New York’s lead, opening up the rest of the country to New York lawyers. in June 2003, Steve and his COSAC subcommittee had persuaded the State Bar’s House of Delegates to approve New York’s versions of Rules 5.5 and 8.5, which differed relatively little from the ABA models, and forward them to the Courts. We were hopeful that we would get a quick response from the Courts.
Alas, our hopes were dashed. Like Dr. Seuss’s Horton the Elephant, the proposals sat and they sat and they sat and they sat — for nearly three years. The Courts never formally responded to them. Finally, in 2006, the State Bar learned (informally) that the Courts had “concerns” about the proposals, and the State Bar withdrew them. This was bitterly disappointing. I do not expect the Courts to accept the State Bar’s proposals uncritically or to agree with every rule change the State Bar recommends, but I cannot understand why the Courts are so secretive and so uncommunicative about matters of enormous interest to the bar that cannot be resolved without action by the Courts. (Meanwhile, 44 other jurisdictions have adopted rules identical or similar to ABA Rules 5.5 and 8.5. Why is New York, the business capital of America, still lagging?)
The year 2002 was significant in the field of professional responsibility for yet another reason. On July 30, 2002, President George W. Bush signed into law the Sarbanes-Oxley Act. I wrote about the resulting regulations in the March 2003 issue of NYPRR, in an article entitled Proposed SEC Standards — Round Two for the SEC Bar. I explained:
On Nov.21, 2002, to comply with the Congressional mandate in §307 of the Sarbanes-Oxley Act of 2002, the SEC issued proposed Standards of Professional Conduct for Attorneys. Among other things, the November proposals would have required an attorney to make a so-called “noisy withdrawal” if an issuer did not respond appropriately after an attorney reported evidence of a material violation of the securities laws.
On Jan. 30, 2003, after reviewing numerous comments on its November proposals, the SEC released “final rules”. These final rules will take effect around July 30, 2003. … In the same release, however, in response to the “vast majority” of those who commented on the November proposals (including the American Bar Association and the Association of the Bar of the City of New York), the SEC extended the comment period on the noisy withdrawal proposals, and offered an “alternative” to the noisy withdrawal proposals. … Moreover, the SEC has stated that its actions on the alternative proposals may lead it to change the final rules that were issued on Jan. 30, 2003.
Thus, three options are actively on the SEC table: (1) the original noisy withdrawal rules proposed in November 2002; (2) the alternative to noisy withdrawal proposed in January 2003; and (3) the final rules as adopted, which are scheduled to take effect in late July. This article reports on these three options with the aim of encouraging readers to file comments with the SEC by the April 7th deadline.
The SEC’s Final Rules as Adopted
If the SEC does nothing further, the final rules that the SEC has already adopted will take effect in late July. Thus, the final rules are the official status quo against which the other options should be measured. Basically, the final rules apply to any attorney who appears and practices before the SEC in the representation of issuers in any manner. if such an attorney discovers “evidence that a material violation” of the securities laws has occurred, is occurring, or is about to occur, then the attorney must report the evidence directly to the issuer’s chief legal officer (CLO). The attorney has the option of reporting the evidence to the CEO as well, but reporting to the CEO does not excuse reporting to the CLO. The mandatory reporting rules do not depend on whether the reporting attorney “knows” or has “knowledge” of a past, present, or future material violation — the trigger for a report is merely that the attorney has “evidence” of a material violation.
Once an attorney reports evidence of a material violation to the CLO, the CLO must do two things: (a) inquire into the evidence of the material violation, and (b) take reasonable steps to cause the issuer to adopt an “appropriate response,” unless the CLO reasonably believes based on this inquiry that no material violation has occurred, is occurring, or is about to occur.
If the CLO and/or CEO do not provide an appropriate response within a reasonable time, the attorney must (a) report the evidence “up the ladder” to an appropriate committee of the issuer’s board of directors or to the full Board, and (b) explain to the CLO, CEO, or Board why the response (or lack of any response) to her original report is inappropriate. if the issuer still fails to adopt an appropriate response at this juncture, the final rules permit (but do not require) the attorney to report confidential information to the SEC to the extent the attorney reasonably believes necessary for any of three purposes:
(i) to prevent the issuer from committing a material violation likely to cause substantial injury to the financial interest or property of the issuer or investors, or
(ii) to prevent the issuer, in a Commission investigation or administrative proceeding from committing perjury, suborning perjury, or perpetrating a fraud upon the Commission, or
(iii) to rectify the consequences of a material violation by the issuer that has caused, or may cause, substantial injury to the financial interest or property of the issuer or investors in the furtherance of which the attorney’s services were used.
I will continue my history of the regulation of lawyers in New York next month (NYPRR May 2011).
Roy Simon is the Howard Lichtenstein Distinguished Professor of Legal Ethics at Hofstra University School of Law and is the author of Simon’s New York rules of Professional Conduct Annotated, published by West. He is working on the 2011 edition.
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